Economics and Ideology: Aspects of the Post-Ricardian Literature by S. Hollander

Source

This essay first appeared in the journal Literature of Liberty: A Review
of Contemporary Liberal Thought,
vol. II, no. 3, July/September 1979, published by the Cato
Institute (1978-1979) and the Institute for Humane Studies (1980-1982) under
the editorial direction of Leonard P. Liggio.
Although the editorials were unsigned, they were probably written by
the Editor Leonard P. Liggio or the Managing Editor John V. Cody. It is republished
with thanks to the original copyright holders.

Samuel Hollander, "Economics and Ideology: Aspects of the Post-Ricardian
Literature"

Samuel Hollander, economic historian, was born in London and studied at
the London School of Economics and Princeton University. He has taught
all over the world, from Canada to Australia, and received numerous
awards. His work on classical political economy includes detailed
studies of Adam Smith, David Ricardo, John Stuart Mill, and Thomas
Robert Malthus.

Introduction

David Ricardo (1772–1823), author of the influential Principles of Political Economy and Taxation
(1817), belongs to that more or less cohesive "school" of political
economy for which Karl Marx coined the label "classical economics." As
a "comprehensive liberal philosophy" classical economics transcended
narrow positivist economic science and attracted public attention,
especially during the nineteenth century, by urging public policy
reforms along a broad front of political, social, and economic issues.
Armed with the analytical tools of political economy, the classical
economists attacked the thorny contemporary problems of inflation,
commercial and agricultural policy, as well as economic growth and the
possible limits of the burgeoning population of the Industrial
Revolution. Chief among the Scottish and English "classical" economists
during the 150 years from the birth of its mentor Adam Smith to the
death of John Stuart Mill, the eloquent voice of liberalism in
transition, were: Adam Smith (1723–1790), Jeremy Bentham (1748–1832),
Thomas Robert Malthus (1766–1834), David Ricardo (1772–1823), James
Mill (1773–1836), Robert Torrens (1780–1864), John Ramsay McCulloch
(1789–1864), Nassau William Senior (1790–1864), and John Stuart Mill
(1806–1873).

Controversy and partisan ideology becloud scholarly interpretations of Ricardo's and "Ricardian" economics. Ricardo and the other classical economists looked to Adam Smith's Wealth of Nations
(1776) for their inspiration and analytic paradigm of how to do
political economy in a comprehensive sense. However, the pressures of
the Industrial Revolution, the inflationary storms arising from the
Napoleonic Wars, and exploding technology, population, and social
unrest taxed the classical economists to extend the scope and
methodology of Adam Smith to deal with nineteenth-century issues.
Opinions vary on how closely Ricardo himself hewed to the Smithian
paradigm. In his own opinion, Ricardo in the Preface to his Principles
believed that he was walking in Smith's footsteps (and those of his
Continental followers) and merely dealing with a new set of problems
left unsolved by his predecessors:

To determine the laws which regulate this distribution
is the principal problem in Political Economy: much as the science has
been improved by the writings of Turgot, Stuart, Smith, Say, Sismondi,
and others, they afford very little satisfactory information respecting
the natural course of rent, profit, and wages.

Later economists disagreed on the impact and meaning of Ricardo's
and the "Ricardians'" contributions to economics and whether Ricardian
economics represented a "detour" from Smithian analysis. Begrudgingly
and waspishly, John Maynard Keynes declared that Ricardian economics
"conquered England as completely as the Holy Inquisition conquered
Spain." J.R. McCulloch, Ricardo's fellow "classical" economist, saw
Ricardo's Principles as beginning "a new era in the history of
the science." Marx, however, judged 1830 as the end of Ricardian
economics. Finally, Schumpeter's influential opinion held that the
"Ricardians were always a minority in England." More extravagantly the
"Ricardian" man of letters, Thomas De Quincey wrote of his mentor's
advancement of economic learning:

All other writers had been crushed and overlaid by the enormous weight of facts and documents; Mr. Ricardo alone had deduced, a priori,
from the understanding itself, laws which first gave a ray of light
into the unwieldy chaos of materials, and had constructed what had been
but a collection of tentative discussions into a science of regular
proportions now first standing on an eternal basis.

Amid such dissent over Ricardo's place in the development of
nineteenth-century economics, it is necessary to determine whether
Ricardo's economic analysis and Ricardian procedure represented a
genuine contribution or was an unfortunate "detour" from the emerging
general-equilibrium procedure and analysis.

Synopsis

This essay examines two themes central to the literature on
nineteenth-century "classical" economics. The first is that of an
alleged dual development of economic theory—a development that contrasts "Ricardian" procedure on the one hand with embryonic general-equilibrium,
or "neo-classical," procedure on the other. My second theme concerns
the motives for the so-called "bourgeois dissension" from Ricardian
theory following David Ricardo's death in 1823. Past writers have
regarded this dissent as a reaction against the ideological use made of
Ricardian theory by the "labor writers," and particularly against
Marx's interpretation of Ricardo. In Sections I to III, I sketch the
received doctrine on these matters. In the remainder of the essay I
shall argue that the nineteenth-century record actually portrays a
common theoretical heritage shared by most economic writers regardless
of ideology: allocation via the price mechanism. This rules out any
dualistic categorization of economic developments into "Ricardian" as
opposed to general-equilibrium streams. I shall also argue that we
cannot usefully interpret in ideological terms the "bourgeois
dissension" (a subject easy to exaggerate).

I. The Concept of a "Dual Development" of Economic Theory

Economists from diverse ideological backgrounds share the notion of
a "dual development" of economic theory. Such a "dual development"
theory is common both to J.A. Schumpeter's History of Economic Analysis
(probably the best known history of economics ever written) and to a
variety of interpretations in the Marxian tradition (for example,
Maurice Dobb's Theories of Value and Distribution Since Adam Smith).
Those who endorse this "dual development" approach largely agree in
terms of this theory's substantive content. Differences among these
economists lie in their evaluations of the evidence; these
evaluative differences flow from the perspective of the particular
"ideal type" of analysis which each economist uses to evaluate the
early literature.

General Equilibrium Development

Thus, Schumpeter's economic vantage point is the (Walrasian) general equilibrium analysis of productive organization. The characteristic feature of this "ideal type" of economic analysis is the simultaneous determination of the prices of outputs and productive services (land, labor, capital) by the market demand-supply mechanism.1
The simultaneity of the economic process is seen in the demand prices
of productive services in each use. These prices derived through the
"imputation" among them of the value of the final output, utilizing the
principle of substitution at the margin in both production and
consumption. Simultaneity also appears in the role played by the
returns to productive services in the determination of product prices.

In production, this principle states that each productive
service ought to be employed so that the ratios of the marginal
products of all productive services are equal to the ratios of their
prices. In consumption, it states that consumers ought to
allocate their consumption so that the ratios of the marginal utilities
of all goods consumed are equal to the ratios of their prices. Any
departure from the requisite ratio equality in the case of either a
particular productive service or a particular consumption good will
lead to substitutions. Such substitutions occur either (a) in
the use of productive services or (b) in the consumption of commodities
so as to reestablish all desired ratio equalities. Simultaneous
determination occurs since it is possible for each decision to be made
without others having to precede it temporally. All relations in the
economic analysis are represented by an interrelated system of
mathematical equations. Consequently, several determinations are made
simultaneously: the determination of the product prices, the
determination of the demand prices, of productive services, the
determination of the desired mix of productive services in production,
and the determination of the desired mix of output produced. Each
decision necessarily reflects and requires the other through the market
demand-supply mechanism. The simultaneous determination of all required
economic magnitudes constitues the general equilibrium

Within this general-equilibrium model, the problem of
distribution—envisaged as the pricing of productive services—is simply
one aspect of the analysis of productive organization. In this
analysis, given resources are allocated between different uses and
within each use by means of price competition.

Alleged "Ricardian" Development According to Schumpeter

Ricardian economic procedures, according to the Schumpeter-Knight
historiography, are diametrically opposed to the spirit of general
equilibrium. Above all, they are opposed to its conception that the
returns to factor services are competitively determined prices: "The
problem of distribution, the sharing of a joint product among an
indefinite number of agencies (owners) cooperating in its creation, not
merely was not seen as a problem of imputation, but was not approached
as a problem of valuation at all."2
The Ricardian approach was to consider the problem of distribution in
terms of these aggregate class shares. Ricardo employed a model that
accounted for rent as a differential surplus, wages by the subsistence theory, and profits as a simple residual.

In dealing with the determination of the laws regulating
distribution—his fundamental problem—Ricardo is said to have
arbitrarily reduced the number of variables in his model until he was
left with but one variable, namely profits. These profits were
determined as a form of residual
(the difference between the marginal product of labor and the
subsistence wage rate), by the one equation of the system. This
particular approach was dictated, so runs Schumpeter's argument, by
Ricardo's "inability to deal with systems of simultaneous equations,"3 and his failure to appreciate the notion of incremental variation, that is, of factor and product substitution.4
Schumpeter's argument further contends that Ricardo had no conception
of the demand-supply apparatus—that he was "completely blind" to its
nature and logical place in economic theory. Ricardo restricted
demand-supply analysis to the short-run case of given supplies and
monopoly. Further, Ricardo envisioned the labor theory (which he
applied to long-run exchange values), as "distinct from and opposed to"
demand-supply theory.5
Schumpeter further argued that the specific engine of analysis which
Ricardo devised, constituted a "detour" in the development of economic
analysis. For, had not A.R.J. Turgot, Adam Smith (in significant
chapters of the Wealth of Nations) and in particular J.B. Say,
Lord Lauderdale and T.R. Malthus previously achieved a considerable
insight into the "correct" approach towards productive organization?
This earlier approach viewed distribution as the pricing of requisite
and scarce services.6

Despite these earlier efforts and the work of "the men who wrote
above their time" (the "dissenters") during the post-Ricardian period
(especially Mountifort Longfield)7,
it was only during the last three decades of the nineteenth century
"that the conception of an economic cosmos that consists of a system of
interdependent quantities was fully worked out with all its problems,
if not quite satisfactorily solved, at least clearly arrayed and with
the idea of a general equilibrium between these quantities clearly
established in the center of pure theory."8

Dobb's Version of a "Dual Development" of Economics

An exact "mirror image" of Schumpeter's "dual development" reading
of the evidence appears in Maurice Dobb's Marxian study. Dobb discerns
two streams of thought—two classical traditions—relating to exchange
and income distribution. Both streams flow (albeit in very different
ways) from Adam Smith as fountainhead.

The first classical tradition originated in Smith's cost of
production theory (the "adding-up-components" version). For Smith
competition, through the operation of supply and demand, assures that
market prices gravitate towards "natural" prices. These "natural"
prices are defined as the sum of the unit wage, unit profit and unit
rent costs when the factors of production are paid at their "natural"
rates. These "natural" or necessary factor payments are in turn
determined by the general conditions of supply and demand for labor,
capital and land. This approach "etched in lightly and suggestively by
Smith" was developed by the Longfield-Senior group, by John Stuart
Mill, and subsequently by W.S. Jevons and Alfred Marshall. Full
fruition was reached with the Austrian school and the Lausanne school.
In the economic theories of these schools (according to Dobb) "product
prices and income-distribution [are] assimilated into one system of
mutual and simultaneous determination of product-prices and
factor-prices in interaction."9

The second classical tradition—far from constituting a "detour" was, Dobb believed, the true
tradition. It flowed from Smith in the sense of being a reaction
against his system. Ricardo replaced Smith's "peculiar" value theory
"to make conditions of production, and in particular quantities of
labor expended in production, the basic determinant [of value] alike in
capitalist and pre-capitalist society."10 The Ricardian system placed distribution in center stage. Dobb contrasts Ricardo with Smith in the following passage:

Whatever his reason may have been for regarding
distribution as the central problem, his instinct in doing so was
undoubtedly right, and his mode of treating distribution was crucial.
He saw that this had to be explained in terms peculiar to itself and
not as an outcome of general supply-demand exchange relations, as Smith
had treated it…Moreover for Ricardo an answer to the question about
distribution was a necessary and prior condition for calculating the
effect of a change in wages on prices (both general and individual
prices): in other words for calculating the 'modifications' of relative
prices introduced by differences in technical coefficients of
production, affecting particularly the use of fixed capital.11.

In brief, distribution had logical priority over prices or
exchange values. Dobb's Marxian view of the Ricardian tradition
divorces distribution from the general pricing process. The wage rate
is determined "exogenously," that is, outside of the exchange system,
and profits are a residual.12

The formal identity between the interpretations of Schumpeter and Dobb, insofar as concerns the content of Ricardian theory, will now be apparent. Both emphasize Ricardo's alleged divorce of distribution and exchange;
both note that the absence of a notion of distribution is a problem in
factor pricing. Both lay great stress on the conception of an
exogenously determined wage rate. They also share the notion of a "dual
development" of economic theory. But the difference between them is
also clear: Schumpeter treats the Ricardian characteristics in question
as an inexcusable lapse, a failure to appreciate the nature of economic
analysis. They lead to a result that lacks sense. By contrast, Dobb
views the same characteristics as a matter of deliberate choice
reflecting a full appreciation of the nature of scientific economics.

Dobb's View of Ricardo and the "Cambridge" School

Dobb's position may be placed in broader perspective. The modern "Cambridge" school of economists finds little merit in general equilibrium
procedure in principle. It champions, rather, an approach involving the
treatment of prices, production levels, and distribution by means of separate models, with an eye upon the isolation of "one-way-direction" relationships or the "causal ordering" of variables.13
This is a method attributed to Piero Sraffa, as well as to Marx, as we
shall see. Because the function of the economist is believed to consist
in the specification of "causal" relations where appropriate,
"Cambridge" economists attach great merit to the specification of the
real wage in cultural or institutional terms and the treatment of
profits as residual.

1. The Sraffa "Corn Profit" Model of Ricardo

The "Cambridge" economists reflect a number of specific
interpretations of Ricardian theory. I have in mind, first, Piero
Sraffa's interpretation of Ricardo's Essay on the Influence of a Low Price of Corn on the Profits of Stock
based upon the assumption that in the agricultural sector both output
and input consist of a single homogeneous commodity ("corn" or grain),
so that the rate of profits may be determined in terms of physical product independently of consumer valuation.14

How is this profit rate determined concretely in this framework?
This profit rate is set at the margin of cultivation; that is, by
farmers cultivating land that is the least fertile or farthest from
market centers. This comes about as follows: as the cultivation of land
expands in response to the growth of population, farmers have to bring
less-productive land under cultivation. On that land a given amount of
the farmer's labor and capital produces a smaller output than on more
fertile or better located land. In this view, the exchange value
of output depends on the units of labor and capital used to produce it.
Accordingly, the exchange value of output produced on less fertile (or
more poorly situated) land is held to exceed that of output produced on
better land. It is this exchange value that will constitute the general
market price. (In this theory the difference between the market price
so determined and the value of output produced on better land is, of
course, rent).

On all land under cultivation, there can be only one rate of wages
and one rate of profits. The wage rate in real terms is set by the
ratio of the "wage fund" (assumed to be a definite share or portion of
real consumer goods) to the labor pool and tends towards subsistence.
The rate of profit is set equal in all employments by the mobility of
capital. But, as cultivation extends to less-productive lands and
market prices of farm produce rise, the nominal (or money)
value of the wage fund rises. The exchange value of output will not
change unless the amount of labor content changes. Hence, a rise in the
level of nominal wages (due to the results of the extension of cultivation) must be accompanied by a fall in the level of profits. Consequently, the rate of profits is set by the margin of cultivation.

Given the profit rate in agriculture as determined by this margin of
cultivation—the wage basket consisting of a fixed quantity of grain or
"corn"—a specific ratio of the price of manufactures to that of corn is
implied, namely that which brings the profit rate in the manufacturing
sector into line.

2. Pasinetti's Version of Ricardo

Luigi Pasinetti's algebraic formulation of Ricardo's system (attributed to the "mature" Ricardo of the Principles) is one which, in contrast to Sraffa's corn-profit representation, formally adopts the labor theory of exchange value.15
The Ricardian system is represented by a two-commodity model involving
a wage-good (corn) and a luxury-good, the latter identified with the
standard of value ("gold"). The monetary unit is taken to be the
constant gold output of one worker for one year: "gold" represents in
this model an invariable measure of value. Corn is also
produced in a one-year process. In both sectors, wage-goods or
circulating capital alone is required, and the capital stock at the
beginning of the year is presumed to be a given, as is the corn wage.
Given the land area and the state of technology, Pasinetti's (fourteen)
equations describing the system yield unique and economically
meaningful solutions for the (fourteen) variables of the system,
including the rate of profit. What we must emphasize for our purposes
here is the independence of the general profit rate from conditions in
the luxury-good sector. The profit rate is dependent solely upon
the marginal product of labor in agriculture and the given corn wage,
which is precisely the result of the dual sector "corn profit model".16

3. Dmitriev's Equational Version of Ricardo

A labor theory of value is not, however, required to hold that the
wage-goods determine general profit. I refer to the brilliant
interpretation of Ricardo by V.K. Dmitriev (1904) whose recent
rediscovery has excited much interest.17
Dmitriev's analysis defends Ricardo against Léon Walras's
criticism—quite ruinous if justified—to the effect that the Ricardian
system is underdetermined, containing too few equations to determine the unknowns.18
But according to Dmitriev's defense there is one equation in Ricardo's
system of production cost equations that yields a solution for the
profit rate independently of the others. This magnitude can then be
used to solve for exchange values. The unique production-cost equation
is that relating to the wage-goods sector. The profit rate depends, therefore,
upon the (given) "conditions of production"—the labor inputs, both
direct and indirect, and their investment periods—in the wage-goods
(corn) industry and the (given) corn wage.

The three foregoing representations of the "Ricardian" system—the
Sraffa "corn-profit" model, the Pasinetti version of a dual-sector
system based upon the labor theory, and Dmitriev's equational
system—share in common the dependence of the general profit rate
solely upon the conditions of production in the wage-goods sector and
the (given) real wage. This result turns upon a rigid distinction
between wage- and luxury-goods; it follows from the fact that
wage-goods enter into the production of every product in the
system while luxury-goods do not. This implies a very different
conceptualization of the economic process from that of the
general-equilibrium economists, for whom distribution and pricing are inextricably intertwined.

Marx and Sraffa as Purported "Ricardians"

The Ricardian line, on some readings, includes the economics of Karl Marx and the economics of Piero Sraffa in his famous Production of Commodities by Means of Commodities—subtitled Prelude to a Critique of Economic Theory. To these extensions I now turn.

Alfredo Medio's influential account of Marxian theory claims that
given the profit rate, we can derive prices of production. But the
general profit rate itself is "a function of two basic overall features
of the economy, namely a social factor, the rate of exploitation, and a
technical factor, the methods of production."19 The wage rate is a given or datum
of the analysis, and it is the conditions of production of "basics"
that are relevant for the general profit rate and not those relating to
"non-basics" (commodities which are neither means of production nor
wage-goods).20
Maurice Dobb has made the general point this way: "It will be
clear…that the nature of [Marx's] approach required him to start from
the postulation of a certain rate of exploitation or of surplus-value
(or profit-wage ratio in Ricardo's terms); since this was prior
to the formation of exchange-values or prices and was not derived from
them. In other words, this needed to be expressed in terms of
production, before bringing in circulation or exchange."21

Much the same case has been made with regard to Sraffa's
masterpiece. Roncaglia's recent study of Sraffa's work envisages it as
an investigation of prices of production which are defined as "those
prices consistent with a uniform rate of profit for all industries for
given levels of output." Sraffa's work appears concerned primarily with
"the influence of the distributive variables (the rate of profit and
the wage) on these prices." Sraffa's achievement, Roncaglia contends,
lies in his demonstration "that it is possible to determine
relative prices without any reference to 'marginal' changes, i.e., with
given levels of activity and given 'proportions of factors of
production'…as a function of one distributive variable (the wage rate
or the rate of profits)…"22

The import of this purported influence of the distributive variables
on prices, lies in the implied break-away from marginalist or
general-equilibrium procedure. Prices of production are analyzed
without reference to changes in the levels of output of the various
commodities in the system and without reference to demand. As Roncaglia
phrases it:

In the absence of any considerations whatsoever of the
factors that determine the quantity supplied or the quantity demanded
of the various commodities, there is no reason to suppose that prices
of production should equate the quantity demanded with the quantity
supplied for any commodity in the long period or that market prices
should fulfill this function in the short or very short period. In
addition, in the absence of any explicit analysis of effective (market)
prices the relation between market prices and prices of production must
remain undetermined.

Similarly, "the emphasis that Sraffa places on the absence of change
in the levels of production in his analysis represents an implicit
rejection of the marginalist attempt to determine the equilibrium price
and the equilibrium levels of output simultaneously." The obverse side
of the coin is that by breaking the link between price formation, the
determination of the level of production and the realization of sales,
Sraffa's work is brought into line with the classical economists (with
some qualifications) and with Marx.23

II. On the "Decline" in Ricardian Theory

My investigation of both the content and the origins of Ricardo's Principles—particularly
the process whereby Ricardo, early in 1813, began to discern what he
considered to be a number of logical errors in the Smithian
position—confirms the following: what is characteristically "Ricardian"
is the use of a special theory of value involving an absolute standard
in deriving the inverse relationship between wages and profits—the
fundamental theorem on distribution. In terms of the special measure, a
rise of "money wages" implies a rise in the proportionate share of
wages and a corresponding fall in the profit rate.

Schumpeter contended that Ricardianism was a flash-in-the-pan. The
Ricardian system not only "failed from the start to gain the assent of
the majority of English economists," but by the early 1830s
"Ricardianism was no longer a living force."24
In making his assertion, Professor Schumpeter apparently had in mind
the key role played by the so-called "absolute standard of value" in
the derivation of the proposition that "profits depend upon wages." The
"absolute standard of value" was a commodity produced by a constant quantity
of labor, while the particular dependence of profits upon wages was
that profits vary inversely with wages. Both profits and wages were
conceived as proportionate shares in an output of constant value.25

Recent historiography centrally posits a "decline" in Ricardo's
authority in matters relating to the fundamental theorem of
distribution and its derivation in terms of the invariable yardstick even in the work of the "Ricardians."
In his study of the "Ricardian" classical economist J.R. McCulloch,
Professor O'Brien has added his authority to the view that the central
Ricardian model suffered a serious decline soon after Ricardo's death
in 1823. In fact, it is Professor O'Brien's general theme that while
McCulloch "did much to popularize economics…it was not Ricardo's
economics that he was popularizing…"26
McCulloch, runs the argument, must be considered as squarely in the
Smithian tradition. A similar revisionist interpretation has recently
been put forward regarding the "Ricardian" Thomas DeQuincey.27
That John Stuart Mill must also be excluded from the group constituting
Ricardo's "school" has also been strongly urged: "From Marshall's Principles, Ricardianism can be removed without being missed at all. From Mill's Principles, it could be dropped without being missed very greatly."28 Schumpeter dismisses Mill's formal ascription to Ricardianism as merely "filial piety."

This evaluation is also characteristic of Marxian interpreters. Marx
himself spoke of Mill's work as an example of the "eclectic,
syncretistic compendia" which characterized the period after the
collapse of "scientific" political economy in 1830.29
Along similar lines Maurice Dobb has observed of Mill: "when looking
back on him from a distance one can see quite clearly that in major
respects his own work was much nearer to Marshall than it was to
Ricardo; and that so far as his theory of value was concerned, on the
contrary to continuing and improving on Ricardo, in essentials he took
his stand on the position of Smith where Ricardo had been opposing him."30
But to make it comprehensible, we need to place the Marxian reading in
broader perspective. I turn next to the issue of economics and ideology.

III. On the Motives for Dissension: The Marxian View

An important theme in Marxian historiography is that the roots of
early British socialism can be traced to Ricardo. The writings of
Piercy Ravenstone and Thomas Hodgskin—among other ideological opponents
of "bourgeois" political economy—were said by Marx to "derive from the
Ricardian form;" and Marx refers to "the proletarian opposition based
on Ricardo."31 The derivation in question was a complex one, entailing adoption and development of Ricardian value
theory, rid, however, of any allowances for the independent
productivity of capital. In Marx's analysis the champions of the
proletariat…

seize[d] on this contradiction, for which they found the
theoretical ground already prepared. Labour is the sole source of
exchange value and the only active creator of use-value. This is what
you say. On the other hand you say the capital is everything, and the worker is nothing or a mere production cost of capital. You have refuted yourselves. Capital is nothing but defrauding of the worker. Labour is everything.
This, in fact, is the ultimate meaning of all the writings which defend
the interests of the proletariat from the Ricardian standpoint basing
themselves on his assumptions.32

As one exmple: Thomas Hodgskin's insistence upon the nonproductivity
of capital was the "inevitable consequence of Ricardo's presentation."33 What was involved, according to Marx, is a kind of inversion of the Ricardian analysis.34

There is a second closely related feature of Marx's reading of the
record. The "bourgeois" reaction against Ricardo—the so-called
"dissenting" literature of the 1830s and 1840s—must be understood, runs
Marx's argument, as a reaction to the use made of Ricardian doctrine by
the labor writers. What is referred to as "vulgar" political economy:

only becomes widespread when political economy itself
has, as a result of its analysis, undermined and impaired its own
premises and consequently the opposition to political economy has come
into being in more or less economic, utopian, critical and
revolutionary forms…Ricardo and the further advance of political
economy caused by him provide new nourishment for the vulgar
economist…: the more economic theory is perfected, that is, the deeper
it penetrates its subject-matter and the more it develops as a
contradictory system, the more is it confronted by its own,
increasingly independent, vulgar element, enriched with material which
it dresses up in its own way until finally it finds its most apt
expression in academically syncretic and unprincipled eclectic
compilations.

Marx further argued that vulgar political economy "deliberately becomes increasingly apologetic
and makes strenuous attempts to talk out of existence the ideas which
contain the contradictions" —contradictions that were "in the process
of being worked out in socialism and the struggles of the time."35 It is precisely this reading of the record that reappears in the famous Afterword to the second German edition of Capital.
Here Marx portrays Ricardo as the "last great representative of
political economy," and the year 1830 as the watershed between
"scientific" and "apologetic" or ideological, class-centered economics:

In France and in England the bourgeoisie had conquered
political power. Thenceforth, the class-struggle, practically as
theoretically, took on more and more out, spoken and threatening forms.
It sounded the knell of scientific bourgeois economy. It was
thenceforth no longer a question, whether this theorem or that was
true, but whether it was useful to capital or harmful, expedient or
inexpedient, politically dangerous or not. In place of disinterested
inquiries, there were hired prizefighters; in place of genuine
scientific research, the bad conscience and evil intent of apologetic.36

Marx's reading of the motivation behind the dissenting literature
was accepted by Professor Meek in his well-known analysis of "the
decline of Ricardian economics in England."37
To explain "the strength, vigour and virtual universality of the early
reaction against Ricardo" economists had to resort "above all…to the
fact that a number of elements in his system seemed to set limits to
the prospects of uninterrupted and harmonious progress under
capitalism. In particular, the work of the Ricardian socialists
revealed certain disharmonies and pessimistic implications of Ricardo's
system so forcibly that the economists of the day could hardly avoid
being influenced by them in the course of their evaluation of Ricardo."
Similarly, the majority of economists were very much aware of the
"dangerous use to which a number of radical writers were putting
certain Ricardian concepts." Meek contends that as far as concerns the
theoretical core of Ricardianism, the

concepts of value as embodied labour and profit as a
kind of surplus value, which had proved so useful to the radicals, were
among the first to be amended or rejected: value began to be conceived
in terms of utility or cost of production, or sometimes (as with
[Samuel] Bailey) as little more than a mere relation, and profit came
to be explained not as the result of something which the labourer did
but as the result of and reward for something which either the
capitalist or his capital did.38

IV. Ricardo as a General-Equilibrium Economist

I turn in the rest of my essay to matters of criticism. In the first
place I wish to argue that we need to abandon the entire concept of a
"dual development" of economic theory. I base the following summary
statement on my forthcoming study of the Economics of David Ricardo39 and related researches.

Ricardo and Demand-Supply Analysis

The notion that Ricardo did not possess a demand theory, or at best
only a rudimentary one, is a preposterous but all too common belief;
and it is a contention central to the approach that attempts to
distinguish his economics from the general-equilibrium tradition. It is
not difficult to demonstrate Ricardo's sophisticated appreciation of
demand-supply technique and its use (together with the principle of
profit-rate equalization) in the analysis of a variety of disturbances,
such as subsidies, taxes, wage variations, and so forth. This method of
analysis lent itself to a sharp distinction between the allocative
consequences of changes that affect all sectors of an economy equally
and those changes that affect each sector with a differential impact.
This method—fully consistent with that of Alfred Marshall—was in fact
the only one required by Ricardo in the derivation of the inverse profit-wage relationship. That Ricardo did not formally
use it for this purpose is not in question; he chose rather to base
himself upon the construction of the measure-of-value device.

To understand why Ricardo proceeded in this way, it is necessary to
make conjectures. It is possible—I would say probable—that Ricardo was
eager to make his case in terms of the ideal measure because the
dependence of the return on capital upon the proportionate shares strikes the eye particularly clearly in terms of this formulation. But, whatever the reason, the only rationale
for the inverse profit-wage relation when we focus upon the process of
industry adjustments to disturbances (a rationale which Ricardo himself
provides, although not in this context) is that involving the market
mechanism. And we must firmly emphasize that in this context there is
no sense to the notion that the matter of distribution is somehow
solved prior to pricing.

Ricardo himself may be partly responsible for the erroneous notion
to the contrary. He was prone, especially in the first chapter of his Principles,
to assume a (lower) profit rate corresponding to a (higher) wage rate
by use of the measure-of-value mechanism; next, he was prone to apply
this profit rate to determine the new equilibrium cost prices that
emerge following the disturbance. But Ricardo designed this procedure
as a predictive device rather than as an account of process analysis.
In the latter context the new equilibrium profit rate emerges along with, and not prior to, the new equilibrium price structure.

Earlier in this essay we approached the general issue of the
relation between distribution and pricing from the persepctive of the
consequences of a change in the wage rate. We now approach the matter
from the reverse perspective, that of the consequence upon distribution
of a change in the pattern of demand for final goods.

Insofar as concerns distribution itself, it is clear that wages are
treated as a (variable) price determined by demand-supply relations;
Ricardian theory is not of the fixed-wage variety.40
Here we must emphasize that the analysis proceeds at the aggregate
level, labor demand being represented by part of the capital supply,
and labor supply by the work force; it is the average wage that is at
stake not the wage rate paid to particular categories of workers. Now,
we need to stress that Ricardo's analysis of the allocative effects of
changes in the pattern of demand is limited in exactly the same way as
in Adam Smith's formal statement in the Wealth of Nations.
There—because of Smith's assumption of identical capital-labor ratios
everywhere—such changes affect (temporarily) the factor returns in the
particular industries involved, but not the general return and
thus not the average wage. But Ricardo took an important analytical
step forward in his chapter "On Machinery." Here he introduces
variations in the circulating-fixed capital division and traces out the
implications for labor demand and the wage rate. If we extend generally
the principles developed in this discussion, we can in no way avoid the
conclusion that changes in the pattern of final demand may affect the
demand for labor and thus the general wage rate) by altering the
overall circulating fixed capital rate. There are no "paradigmatic"
differences between Ricardian and neo-classical theory insofar as
concerns the effects upon distribution of a change in the pattern of
final demand. The notion of a sharp divorce between distribution and pricing does not stand up to close examination.

Ricardo, Marshallian Economics, and Resource Allocation

But what justification is there in arguing that the differences
between Ricardian and Marshallian economics do not involve matters of
principle but only matters of detail? Or further, to argue that this
allows a transfer from one to the other by way of minor revisions
(suggested indeed by Ricardo himself)? It is clear that this
constitutes a very tricky problem. For it is one of the characteristics
of economic theory that different analytical models may be described in
terms of one another. Thus, there is admittedly great difficulty in
identifying those differences that constitute alternative simplifying
assumptions (including different values accorded to the key variables)
from those which constitute matters of principle. Were the assumptions
of uniform factor ratios and constant commodity wages used by Ricardo
over and over again without significant exception, the obvious
implication would necessarily be that they represent features of his
"basic model." In that case it would be unconvincing to argue that
Ricardo "could" easily have opened his model in these respects. The
objection would be compounded if the techniques of resource allocation
were as scarce in his work as is commonly believed.

My position, however, is based upon a two-fold demonstration: first, that Ricardo, on matters of fundamental import and not merely casually, himself released the two simplifying assumptions; and second, that he himself
applied the principles of allocation—demand-supply analysis, profit
rate equalization—to a wide variety of issues in a sophisticated way.
Needless to say, he did not consider all the possible
situations where a relaxation of the two key assumptions has profound
consequences, or all those that require treatment in terms of
allocation theory. But, to relax the assumptions and to apply the
theory of resource allocation to a broader range of issues is to follow
along a route laid out by Ricardo himself, using tools of analysis
provided by Ricardo. It does not imply illegitimate transfer from one
general model to another; nor, to be more specific, does it require our reading into Ricardo of a body of Marshallian theory that in reality is not there.

A further vital outcome of my analysis is that the profit rate in
agriculture does not play the strategic role in the system envisaged in
the various mathematical formulations of the Ricardian system outlined
above. A number of illustrations reveal this key fact:
technological improvement in the agricultural sector releases labor and
capital for employment in other sectors, which are reabsorbed elsewhere
with no alteration in their respective returns; the price of corn falls
to the lower cost level and the return in agriculture (temporarily
raised) comes back into line with the given general rate. Thus,
despite a change in the "margin of cultivation," the profit rate
remains constant. Similarly, freer corn importation leaves the general
profit rate unchanged despite a contraction of the domestic margin. The
process involves a fall in the price of corn and the transfer of
resources to the manufacturing sector with no effect on the general
profit rate. Precisely the same argument holds for the case of a
corn-export subsidy; indeed, much of this analysis proceeded (for
simplicity) on the assumption that agriculture is a constant cost
industry, so that after expansion the corn price falls to the original cost level.

Now Ricardo certainly insisted that if the price of luxury goods
(silks, velvets, etc.) rose there would be no effect on profits "for
nothing can affect profits but a rise in wages; silks and velvets are
not consumed by the labourer, and therefore cannot raise wages."41
But this is a quite separate analytical issue. Ricardo himself tried
hard to keep the issues separate. Thus, he recognized the possibility
that technical change might reduce the cost and price of corn and yet
leave "money" wages unaffected—in which case the profit rate remains
unchanged (although the commodity wage rises).42
Similarly, an increase in the price of corn might leave the money wage
unchanged with laborers reducing their consumption of other goods (in
which case the profit rate is again unaffected).43
With such a wide variety of possibilities it is quite essential not to
confuse the effects on the profit rate induced by a change in the
margin of agriculture itself—and I argue there are none—and the effects
of a change in the price of corn working upon the general profit rate
by way of money wages. It is only the attribution to Ricardo of a fixed
(real) wage assumption that precludes this essential distinction.

Ricardo vs. Walras's Critique

We are also in a position to examine the validity of Léon Walras's
criticism of Ricardian procedure. Walras's complaint, it will be
recalled,44 was that the Ricardian system is underdetermined, even if rents are excluded from selling prices and wage costs are assumed given.
The equation relating selling price to the sum of wage and interest
charges cannot determine price unless interest charges are known, while
interest charges are themselves determined by the difference between
the unknown selling price and wage costs. Dmitriev's defense of Ricardo
turned precisely upon the property that I have excluded, namely, that
the general profit rate is yielded by that cost equation pertinent to
the wage-goods sector, independently of all the other equations
(provided the real wage is given the system is a determinate one).

My defense of Ricardo against Walras's charge runs along completely
different lines. The simple point is that Walras failed to recognize
the key role played by demand in the Ricardian system. Marshall
was well aware of this characteristic and went out of his way to make
the point in his defense of Ricardo against the strictures of Walras,
W.S. Jevons, Carl Menger and others. Marshall, in fact, found Ricardo's
formulation preferable to that of Jevons, who "substitutes a catena of
causes for mutual causation." Ricardo's doctrine "though unsystematic
and open to many objections, seems to be more philosophic in principle
and closer to the actual facts of life."45
Unfortunately, "Jevons's criticisms of Ricardo achieved some apparently
unfair dialectical triumphs, by assuming that Ricardo thought of value
as governed by cost of production without reference to demand"—a
"misconception of Ricardo…doing great harm in 1872,"46 and one, we may add, still prevalent a century later.47

In the light of these and related considerations it would appear
that the contrasts between Ricardian and neo-classical procedures are
not such as to justify the notion of a "dual development" or two
separate streams of nineteenth-century thought.48 To say this is not, however, to suggest an identity of procedure and certainly not an identity of preoccupation. It
is to suggest rather the sharing of a common heritage or "central
core," which amounts largely to allocation theory and mechanisms of
demand-supply analysis.

V. Marx and Ricardo

I turn next to Marx. As noted above, the conception of a solution to distribution prior
to pricing characterizes much of the literature relating to Marx. I
believe that the same kind of argument that I have made against this
interpretation in Ricardo's case applies here also: the relationship
between distribution and pricing that Marx had in mind was precisely
that which characterizes standard Ricardian theory. And in Marx's case
too the erroneous interpretation flows both from the attribution to him
of a fixed-wage assumption and from a methodological complexity that
almost precisely parallels that discussed above regarding Ricardian
procedure.

The problem flows from the organization of Capital in terms
of a sequence of volumes, the first based on the labor theory and the
third based on prices of production—the famous "transformation"
procedure—that suggests a solution to distribution in the "value"
scheme prior to pricing. But Marx was concerned here, I would
argue, with the "interpretation" of the source and nature of nonwage
income and not with process analysis. The causal linkages of his
system, particularly the distribution-pricing nexus, turn out to be
identical with those of Ricardo's system. Specifically, the rate of
surplus value or "exploitation" (which implies the wage rate) and the
profit rate are both treated by Marx as variables (not as data
in the analysis of pricing), whose levels are yielded as part of a
general-equilibrium solution. There is no way of ruling out the
potential effect of changes in the pattern of demand for final goods
upon the rate of surplus value and thus upon profits.

The rationale for Marx's precise procedural exposition in Capital
is of particular interest. In general terms, Marx operated on the
methodological rule that "all science would be superfluous if the
outward appearance and the essence of things directly coincided."49
To have outlined orthodox analysis first would have been handing.
hostage to fortune; the ground had to be safely prepared to assure that
readers would not draw "erroneous" conclusions from observation of the
characteristics of the competitive general-equilibrium system. Marx had
in mind primarily the source of profits. He isolated this source in
surplus labor time—by which he implied that the capitalist had a
"personally functionless role."50 My main point is, however, that Marx in no way intended a causal dependency of the price scheme upon values.

There is indeed much in Capital regarding the potential
consequences of changes in the pattern of final demands. But it would
be unjustified to play down Marx's profound conviction that:

'the social demand,' i.e., the factor which regulates
the principle of demand, is essentially subject to the mutual
relationship of the different classes and their respective economic
position, notably therefore to, firstly, the ratio of total
surplus-value to wages, and secondly, to the relation of the various
parts into which the surplus-value is split up (profit, interest,
ground-rent, taxes, etc.)

That demand patterns were seen to be essentially governed by income
distribution, Marx concluded, meant that "absolutely nothing can be
explained by the relation of supply to demand before ascertaining the
basis on which this relation rests."51
The fact, however, that the primary determinants of tastes must be
sought in the sphere of income distribution—which, in turn, is subject
to constraints imposed by the social, political, and legal
environment—in no way removes the necessity of appreciating how the
capitalist system accommodates itself to disturbances, should they
occur, in commodity or labor markets. To assume otherwise is to imply
a totally sterile model. Marx never imposed upon himself so limited a
frame of reference, for he did deal explicitly both with the effects of
a change in the pattern of final demands (albeit in an incomplete
analysis), and with those of a change in the wage rate. The following
passage provides further evidence of a far greater degree of
flexibility in Marx's vision than is so often attributed to him:

It would seem, then, that there is on the side of demand
a certain magnitude of definite social wants which require for their
satisfaction a definite quantity of a commodity on the market. But
quantitatively, the definite social wants are very elastic and
changing. Their fixedness is only apparent. If the means of subsistence
were cheaper, or money-wages higher the labourers would buy more of
them, and a greater social need would arise for them, leaving aside the
paupers, etc., whose 'demand' is even below the narrowest limits of
their physical wants…The limits within which the need for commodities
in the market, the demand, differs quantitatively from the actual social
need, naturally vary considerably for different commodities; what I
mean is the difference between the demanded quantity of commodities and
the quantity which would have been in demand at other money-prices or
other money or living conditions of the buyers.52

VI. Sraffa and Ricardo

Marx, on my reading, is a "Ricardian" theorist. By contrast, Sraffa is not.
In Ricardo's scheme, re-establishment of an equilibrium system of
relative prices following (for example) a variation in wages occurs by
way of changes in output (allowing for the condition of equality
between quantities demanded and supplied in commodity markets). In
Sraffa's model, by contrast, there is no process analysis:
re-establishment of equilibrium following a disturbance requires that
the condition of profit-rate equality be satisfied, but nothing is said
about the mechanism of adjustment; indeed, marginal adjustments are
positively ruled out. The condition is, as it were, simply a
mathematical prerequisite. Sraffa, unlike Ricardo, thus turned his back
on Smithian process analysis. According to process analysis,
re-establishment of equilibrium entails reactions by capitalists to
profit-rate differentials, and they are manifested in expansions or
contractions of the various industries.

We come now to a further fundamental difference between the two
structures. Sraffa does not provide a theory of distribution; one of
the distributive variables must be given exogenously. However, a brief
hint of great interest is given as to the most promising mode of
procedure:

The choice of the wage as the independent variable in
the preliminary stages [of Sraffa's work] was due to its being there
regarded as consisting of specified necessaries determined by the
physiological or social conditions which are independent of prices or
the rate of profits. But as soon as the possibility of variations in
the division of the product is admitted, this consideration loses much
of its force. And when the wage is
to be regarded as 'given' in terms of a more or less abstract standard,
and does not acquire a definite meaning until the prices of commodities
are determined, the position is reversed. The rate of profits, as a
ratio, has a significance which is independent of any prices, and can
well be 'given' before the prices are fixed. It is accordingly
susceptible of being determined from outside the system of production,
in particular by the level of the money rates of interest.53

Now, this whole problem does not arise in Ricardo's theory for neither the profit rate nor the wage rate appear as data of his analysis. The wage rate is a variable determined by the general system of demand and supply relationships in the labor market, while the profit rate is merely a formal
residual, since there exists a mutual dependency of the one upon the
other. In short, Ricardo's model involves the use of something akin to
the equilibrium conception of marginalist theory in the context of
distribution. This is clearly implied in Ricardo's following statement:

I should think it of little importance whether the
profits of stock or the wages of labour, were taxed. By taxing the
profits of stock, you would probably alter the rate at which the funds
for the maintenance of labour increase, and wages would be
disproportioned to the state of that fund, by being too high. By taxing
wages, the reward paid to the labourer would also be disproportioned to
the state of that fund, by being too low. In the one case, by a fall,
and in the other by a rise of money wages, the natural equilibrium between profits and wages would be restored.54

I conclude that Sraffian theory stands apart from the Ricardian tradition.

VII. The Longevity of Ricardianism

A careful study of the reception of Ricardo's theorem on
distribution shows that a firm and positive impression was left on the
work of a number of authors normally regarded as "dissenters" par excellence—including
T.R. Malthus, Samuel Bailey, Robert Torrens and Mountifort Longfield.
This was the case despite their frequent formal criticisms of Ricardo
and his followers and their declared objective to break new ground, or
at least to refute the merit of Ricardo's divergencies from the Wealth of Nations.55
It is also clear that the current practice of minimizing the adherence
of J.R. McCulloch, J.S. Mill and Thomas De Quincey to
Ricardianism—placing them in Smith's camp as far as concerns the theory
of value and distribution—is unjustified.

On the whole, the quality of the dissenting literature is
disappointing. Much of the work reflects nothing but an unwillingness
or inability torecognize different possible meanings of a word when
used by different writers, or by the same writer in different contexts.
The literature is also replete with sham controversy regarding the
"cause" of various phenomena such as rent and values. This reflects, in
turn, a failure to distinguish between the data and the variables of a
model, and between interdependent, atemporal and nonsequential models
and temporal, sequential models.

If substantive matters relating to the fundamental theorem on
distribution and its foundation in value theory are isolated, it then
becomes clear that there was no rapid decline in Ricardo's authority.
His revisions of Smithian theory constituted by and large a "success"
in terms of acceptance by his immediate successors.56
These conclusions regarding the longevity of the basic Ricardian theory
will appear less surprising than on a first view if we bear in mind
that the relativity dimension of value—reflecting the mechanisms of
allocative adjustment—played a key role in Ricardian procedure. Ricardo
was attempting to correct Smith on the latter's home ground.

My investigation of the reception of Ricardian theory also suggests
that many of the contributions of the dissenters would not have been
considered objectionable by Ricardo. In many important instances the
post-Ricardian critics simply misinterpreted Ricardo. Malthus believed,
quite erroneously, that Ricardo maintained his cost theory of exchange
value as an alternative to demand-supply theory, and that he
had rejected Smith's demand-supply treatment of the labor market. Both
Malthus and Longfield asserted, without justification, that in
Ricardo's system rising capital with population unchanged leaves the
profit rate unaffected—that the only cause of falling profits was
resort to inferior land.57
In his famous critique Samuel Bailey made the outrageous charge that
Ricardo failed to appreciate the relativity dimension of exchange value.58
Nassau Senior's objection to Ricardo (adopted also by Bailey and T.P.
Thompson)—that to say "it is the price of[the] last portion of corn,
which governs that of the remainder, is to mistake the effect for the
cause"—and his adoption, as an alternative, of a demand-supply or "monopoly" explanation, fall into the same category.59 The fact is that the Ricardians—and to a considerable degree Ricardo himself confirms the point—anticipated much of the substantive argument of the "critics."

That the Ricardians—even Ricardo himself in the earlier cases—were
able to see eye to eye with much of the apparently critical work on
value by "dissenters" can be easily accounted for. Ricardo did not
envisage his cost of production theory as an alternative to
supply-demand analysis. On the other hand, the majority of "dissenters"
continued to emphasize the cost determination of price. This is true of
Bailey and Longfield, both of whom spoke of production costs as the
main consideration in price determination. Longfield's analysis of changes
in relative prices emphasized, as did Ricardo, variations of the labor
input; and here too was seen to lie the justification of a labor
measure.

What, however, of W.F. Lloyd's famous contribution to marginal utility?60
In this context the recent researches of Dr. Marian Bowley are
particularly pertinent. As she puts the matter, "no revolutionary
significance" was attached to discussions of the law of diminishing
marginal utility and related conceptions. Moreover, "these
contributions did not affect the main classical conclusions as to the
nature of market and natural prices and their determination."61
This is quite convincing. While Ricardo's main interests lay in
long-run price determination, his economics hinged upon the operation
of the competitive mechanism involving demand-supply analysis. His
rejection of demand-supply theory did not apply to the particular
version elaborated by Longfield, and Longfield himself appreciated
Ricardo's objections to the "indefinite" and "vague" expression
"proportion between the demand and supply" as unhelpful in the
prediction of market price.62 Furthermore, Lloyd's analysis of marginal utility is not inconsistent with a cost or even a labor theory, and was not so envisaged by Lloyd himself:
"if labour becomes more effective, so that commodities of all kinds
shall be produced in a degree of abundance greater in proportion to the
wants of mankind, all sorts of commodities, though exchangeable in the
same proportions as before for each other, could be said to have become
less valuable."63 This statement is quite consistent with a cost or labor theory of exchange value.

To what extent may the conception of interest as a return to
"abstinence" developed by G.P. Scrope, Samuel Read and Nassau Senior be
interpreted as a sharp break with Ricardian procedures?64
To what extent would Ricardo have objected to an analysis of the
precise nature of the savings supply function? The conception in
Ricardo's work of profits as residual is, I believe, little more than a
formal consequence of the implicit presumption that the only
contractual payment is that made to labor. There can be no doubt that
Ricardo recognized the necessity of interest in the limiting case. More
importantly, he took into account the effect of a declining profit rate
on accumulation. It is true that he gave no name to the effect,
but it is by no means certain that he would have objected to the
investigation of the time preference notion that the so-called
"dissenters" insisted upon. John Stuart Mill found no difficulty in
subscribing at one and the same time to the inverse wage-profit
relationship and to the abstinence conception.

It is true that as one illustration of what he called Mill's
"eclectic syncretism" Marx referred to the fact that Mill "accepts on
the one hand Ricardo's theory of profit, and annexes on the other
Senior's 'remuneration of abstinence.' He is as much at home in absurd
contraditions as he feels at sea in the Hegelian contradiction, the
source of all dialectic."65 But there does not appear to be good reason in logic to avoid the simultaneous adoption of a concept of profit envisaged
as a formal residual arising from surplus labor time, and the
abstinence theory; the one is the basis for investment demand, while
the other relates to capital-supply conditions and contributes
therefore to the actual determination of surplus labor time. Marx did
not succeed in his fundamental objective to demonstrate, by his
preliminary formulation in Capital of a value structure, that the capitalist has a personally functionless role.

What, finally, of the widespread application of market demand-supply
analysis to long-run wage determination, as for example by Malthus,
Longfield, Torrens, Read, Scrope and Senior? Here, too, there occurred
no break-away. The story would be a different one were it the case, as
is apparently quite generally believed, that the subsistence wage
played a key role in Ricardo's work, not only in the context of his
growth model but also in basic applications such as wage taxation. But
this is far from an accurate perspective. Ricardo's model was a growth
model in the true sense—with wages and profits above their respective minima, which become relevant only in the stationary state.

VIII. The Marxian Interpretation
of the Dissension: A Critical View

It was Marx's position, as we have mentioned, that while the labor
writers of the 1820s drew upon Ricardo's value theory to reach their
conclusion regarding labor's right to the whole produce, they rejected
these elements of the Ricardian structure that allowed a positive role
to capital. Now, the record suggests that the first part of the
argument—at least as far as concerns the works of Piercy Ravenstone,
William Thompson and Thomas Hodgskin (the best known of the labor
writers of the decade in question)—cannot be substantiated at all: they
made no use whatever of Ricardo's labor theory.66
Hodgskin (unlike the others) did, however, use other aspects of the
doctrine—the inverse profit-wage relation, the subsistence wage and the
differential rent conception. But his usage, it can be shown, was an
ironical one; he himself was unconvinced by their merit. There is more
to the second strand to Marx's case—the socialist critique of the
positive role attributed to capital by Ricardo. Yet Marx understates
the strength of the "socialist" objections. The fact is that it is
difficult to imagine a stronger critic of Ricardianism than Hodgskin.
He condemned it as an apologia for the institutional status quo—a
defense of the capitalist as well as landlord. He read it as a
justification for the contemporary distribution of income; and on his
reading, it failed to bring to light class conflicts. Last, he rejected
its pessimistic underpinnings even as characteristic of contemporary
society. Hodgskin's opposition is quite evident despite the formal use
that he made on occasion of aspects of Ricardian theory.

The vehement anti-Ricardianism of the labor writers—particularly
Hodgskin—makes it very difficult to believe that the dissenters could
have reacted against a dangerous use of the orthodox doctrine
for socialistic ends. We must not, of course, entirely rely upon
circumstantial evidence, particularly in the light of passages that,
taken in isolation, indicate a dependence on certain Ricardian
conceptions (though positively not Ricardian value theory). It is
always possible that the dissenters failed to recognize the hostility
towards Ricardian doctrine on the part of the labor writers. I can,
however, find no evidence that any link was defined such as that
specified by the Marxian historians.67
The position that labor is responsible for all wealth was attributed by
Samuel Read to Ricardo, Smith and Hodgskin. But, while Smith was
treated less harshly than either Hodgskin or Ricardo, no relationship
whatsoever is drawn between the latter two, who are treated apart. G.
Poullet Scrope included Malthus in his list of culprits as well as
Smith, Ricardo, and Hodgskin. Richard Whately directed his critical
attention at McCulloch and James Mill for their reduction of capital to
accumulated labor and their opinion that "time is a mere word," but
neither he nor Scrope linked the socialists with Ricardian theory.
Mountifort Longfield, who also alluded to Hodgskin, also does not
suggest any such connection. To the extent that the dissenters believed
that Ricardo's analysis of value (particularly as interpreted by
McCulloch and James Mill) justified the notion of interest as an
"exploitation" income, their objections did not follow from any
dangerous use that they believed the socialists were making of the
theory.

The notion of class hostility providing a handle for the anarchists,
supposedly engendered by Ricardo's theory, was, however, a central
complaint of one of the most faithful of Ricardo's followers—Thomas De
Quincey. Writing in the Logic of Political Economy, not of
value theory or the inverse wage-profit theorem, but of Ricardo's
minimization of technological progress and the consequent emphasis upon
continuously rising rent, De Quincey complained:

And it happens (though certainly not with any
intentional sanction from so upright a man as David Ricardo) that in no
instance has the policy of gloomy disorganising Jacobinism, fitfully
reviving from age to age, received any essential aid from science,
excepting in this one painful corollary from Ricardo's triad of
chapters on Rent, Profit and Wages…. The class of landlords, they urge,
is the merest realisation of a scriptural idea—unjust men reaping where they have not sown. They prosper…by
the ruin of the fraternal classes associated with themselves on the
land…. The noblest order of men amongst us, our landed aristocracy, is
treated as the essential scourge of all orders beside.68

The supposed connection did not lead De Quincey to seek for an alternative structure.

I come now to a feature of the record that on first sight may seem
an extraordinary paradox. Scrope—the first of the abstinence
writers—was fundamentally opposed to Ricardianism because that doctrine, he believed, lent itself to social apologetics
and this, in part, because of its neglect of the implications of income
distribution for social welfare. (The same can be said of Read.)
Scrope, in short, was a reformer who saw in orthodox doctrine a rock
upon which proposals for social improvement must inevitably be
destroyed. The parallels between Scrope and William Thompson, in their
attitudes to Ricardo, are quite remarkable. Longfield, too, adopted for
his time an exceptionally progressive position.69 To this extent Marx's interpretation seems to be the exact reverse of the actual course of events.

My reading also has clear implications for an interpretation of the
bourgeois dissent that is subtly different from that which turned on
the use made of Ricardo's theory by the labor writers. It is the
argument, sometimes offered as an alternative and sometimes as an
additional consideration, that the bourgeois economists found the
Ricardian doctrine unable to serve as a convincing reply to the
labor writers. As Meek formulated the proposition: Scrope, Read and
Longfield "tended towards the idea that if a doctrine 'inculcated
pernicious principles,' if it denied that wealth under free competition
was consigned to its 'proper' owners, or if it could be so interpreted
as to impugn the motives or capacity of the Almighty, then that
doctrine must necessarily be false."70
Now, in considering this matter we must ask to what end did the
dissenters seek to reply to the labor writers? It was positively not to
the end of justifying contemporary capitalism, as is implied by the
hypothesis. Provided that this fundamental correction of the record is
recognized, we may allow that several major dissenters expressed their
dissatisfaction with specific aspects of Ricardianism, in particular,
with its supposed implications regarding class conflict and its
supposed "pessimism."71

The record is a complex one indeed. We must make allowance for the
fact that Longfield cannot be classified as a thoroughgoing opponent of
Ricardo. He retained enough of the Ricardian framework for it to be
more accurate to say that he actually used the orthodox
doctrine in making his reply to the radicals; and this he did partly by
interpreting it in a manner that avoided the criticism that it
portrayed a picture of class warfare, and partly by his analytical
innovations.

James Mill should also be kept in mind. His loyalty to Ricardo has
never been questioned, but his hysterical response to Hodgskin was
sharper than that of any of the dissenters. Mill evidently did not
believe that the standard Ricardian position failed to provide an
adequate response to the radical challenge; and he saw nothing in that
position—even in the labor theory as interpreted by himself—that served
the purposes of the socialists. The episode in question commences with
Mill's complaint to Francis Place about a working-class deputation to
the editor of the Morning Chronicle:

Their notions about property look ugly; they not only
desire that it should have nothing to do with representation, which is
true, though not a truth for the present time, as they ought to see,
but they seem to think that it should not exist, and that the existence
of it is an evil to them. Rascals, I have no doubt, are at work among
them…. The fools, not to see that what they madly desire would be such
a calamity to them as no hands but their own could bring upon them.72

It was Hodgskin's Labour Defended, Place explained to Mill, which the laborers were preaching. In the following year Mill informed Brougham:

The nonsense to which your Lordship alludes about the
rights of the labourer to the whole produce of the country, wages,
profits and rent, all included, is the mad nonsense of our friend
Hodgskin which he has published as a system, and propagates with the
zeal of perfect fanaticism…. These opinions, if they were to spread,
would be the subversion of civilized society; worse than the
revolutionary deluge of Huns and Tartars.73

Clearly there is no self-evident relationship between a body of
economic theory and the social attitudes of the economist subscribing
to it. All the evidence so far presented points to this conclusion.
I close my argument by observing that the existence of positive
contributions to theory on the part of some of the labor writers
carries the same implication. This is very apparent in Thompson's case.
His discussion of value involves an impressive number of
"non-Ricardian" features. For example, the conceptions of differential
land use, alternative cost, and scarcity value are discussed. He
defines and uses the principle of diminishing marginal utility together
with the principle of increasing marginal disutility of effort, in an
attempt to define an equilibrium wage rate. It is also used in
calculating the efforts of income redistribution.74
The significance of free exchange is clearly expressed in utility
terms: "All voluntary exchanges of the articles of wealth, implying a
preference, on both sides, of the things received to the thing given,
tend to increase the happiness from wealth, and thence to increase the
motives to its production."75 While labor is said to be the sole measure of value, it is not an accurate
measure in the light of changes in preference patterns over time. This
leads Thompson to conclude that to seek an accurate measure of wealth
is "to hunt after a shadow"76—as
clear-cut a criticism as any by Bailey. In Hodgskin's case, what stands
out is his emphasis upon synchronized activity. In an Economist review of 1854, this is elaborated in terms of the mutual exchange of valuable services.77
These conceptions, when found in the dissenting literature, are often
seen as indicating, in some sense, an apologetic justification of
free-enterprise capitalism.

BIBLIOGRAPHY

I. Primary Works

Bailey, Samuel, A Critical Dissertation on the Nature, Measure and Causes of Values. London, 1825.

Roncaglia, Alessandro. Sraffa and the Theory of Prices. Chicester and New York, 1978.

Schumpeter, J.A. Economic Doctrine and Method. 1921; London, 1954.

———. History of Economic Analysis. New York, 1954.

Stigler, George J. "The Successes and Failures of Professor Smith." Journal of Political Economy 84 (November 1967): 1199–1213.

FOOTNOTES

Full citations for works listed in the Footnotes may be found in the Bibliography.

1. J.A. Schumpeter, History of Economic Analysis. Schumpeter's position is much the same, in its essentials, as that of F.H. Knight, On the History and Method of Economics, pp. 37–88.

2. Knight, History and Method of Economics, p. 41. Cf. Schumpeter, History of Economic Analysis,
p. 568: while "Professor Knight went perhaps too far if he accused
Ricardo of not having seen the problem of distribution as a problem of
valuation at all…it is true that Ricardo failed to see the
explanatory principle offered by the valuation aspect." Cf. p. 543n.:
"The full implications of the fact that capitalist distribution is a
value phenomenon are not clearly seen even by Ricardo."

5. Schumpeter, History of Economic Analysis, pp. 600–1. See also p. 592.

6. Schumpeter, History,
p. 474; cf. p. 568, p. 673n. See also p. 560: the rejection of the
labor-quantity theory by the non-Ricardians and anti-Ricardians of the
1830s, Schumpeter contends, "shows again that the Ricardian teaching
was really in the nature of a detour." Keynes too implied that
Ricardianism constituted a "detour" (although his position is limited
to the issue of aggregative demand and falls therefore into an entirely
separate category): "One cannot rise from a perusal of [the
Malthus-Ricardo] correspondence without a feeling that the almost total
obliteration of Malthus' line of approach and the complete domination
of Ricardo's for a period of a hundred years has been a disaster to the
progress of economics." Essays in Biography, pp. 140-1.

16.
The profit rate (r)= f' (&Ncirc;I) – 1; where &xbar; is the
given corn wage and f' (&Ncirc;I) the marginal product of labor in
corn production. Obviously, as the marginal product of labor rises or
falls, the profit rate (r) rises or falls because the corn wage is
assumed to be fixed.

17. See the Biographical Note by D.M. Nuti in V.K. Dinitriev, Economic Essays on Value, Competition and Utility, pp. 29–32.

18. Cf. Léon Walras, Elements of Pure Economics,
pp. 424–51: "It is clear…that the English economists are completely
baffled by the problem of price determination; for it is impossible for
[interest charges] to determine [price] at the same time that [price]
determines [interest charges]. In the language of mathematics one
equation cannot be used to determine two unknowns."

21. Dobb, Theories of Value,
p. 148. There is some ambiguity attached to this kind of conception for
it is not always clear whether temporal priority or causal priority or
both are intended by the "prior" solution to distribution. But in at
least one important formulation temporal as well as causal priority is
explicity attributed both to Ricardo and Marx. Cf. R. V. Eagly, The Structure of Classical Economic Theory.

25. See also F.W. Fetter, "The Rise and Decline of Ricardian Economics," History of Political Economy
1 (Spring 1969). As explained above, Schumpeter considers this
procedure to be in conflict with "general equilibrium" analysis; I do
not.

26. D.P. O'Brien, J.R. McCulloch: A Study in Classical Economics,
pp. 402–3. The treatment of the invariable measure of value, which is
said to be "central to Ricardo's system," we are told "never interested
McCulloch at all." (O'Brien, p. 146).

29.Grundrisse: Foundations of the Critique of Political Economy (1857), p. 883.

30. Dobb, Theories of Value, p. 122. But see the position of Pedro Schwartz, The New Political Economy of John Stuart Mill, pp. 16–7 which places Mill more firmly in the Ricardian tradition at least as far as concerns analysis.

33. Marx, Theories, p. 266. That the roots of British socialism are to be traced to Ricardo's economics was later urged in Anton Menger's The Right to the Whole Produce of Labour
and by H.S. Foxwell in his Introduction to that work: "Whatever
qualifications Ricardo may have made in his own mind, ninety-nine
readers out of a hundred took him literally, and the main impression
left by his book was that while wealth was almost exclusively due to
labour, it was mainly absorbed by rent and other payments to the
unproductive classes." (H.S. Foxwell, "Introduction" to Anton Menger, The Right to the Whole Produce of Labour, pp. xl-xlii).

34. There is an extensive literature adopting this perspective. Élie Halévy, Thomas Hodgskin, pp. 180–1 emphasizes the opposition of the socialists to the Ricardians but at the same time insists upon their dependency
on Ricardo's value theory: "the democratic opponents of James Mill and
McCulloch, the first working-class theorists, instead of attacking the
Ricardian theory of value seized upon its principles to draw from it
new conclusions and to refute, by a form of reductio ad absurdam,
Ricardo's political economy." See also Halévy, The Growth of Philosophic Radicalism, pp. 223–4: William Thompson (and Hodgskin) "draw inspiration" from Ricardo.

Similarly, G.D.H. Cole refers to Hodgskin's work as the
"working-class answer" to Malthus and Ricardo, and to his "critique of
the orthodox economics of Ricardo and his school." (See Cole's
Introduction to Thomas Hodgskin, Labour Defended Against the Claims of Capital,
pp. 10–11.) But he also writes, regarding both Hodgskin and Thompson,
of their "deductions from Ricardian assumptions" and their "inversion
of the Ricardian economic system…[in] essence, their deductions from
Ricardian assumptions are the same." As Hodgskin argues in his book,
"if it is admitted—and Ricardo admits it—that labour is the source of
all value, then clearly all value belongs to the labourer, who should
receive the whole product of his work." (Cole, p. 12). See also Cole, A History of Socialist Thought, I, p. 106.

Max Beer, A History of British Socialism, I, p. 154, draws
the relationship in these terms: "But at the same time the socialists
appeared and began to make use of the Ricardian theory of value as a
weapon against the middle classes and to teach Labour that not the Tory
landowner but the Liberal capitalist was their real enemy. Ricardo made
labour the corner-stone of his system and yet he permitted the
capitalist to appropriate accumulated labour and to decide the fate of
the working classes."

36. Afterword to the second German edition (1873) of Marx's Capital, vol. I, p. 15.

37.
Meek considers Ricardian theory narrowly defined in terms of the labor
theory of value and the related conception that profits depend upon
"the proportion of the annual labour of the country…devoted to the
support of the labourers," or upon the quantity of labor allocated to
the wage-goods sector relative to the labor force as a whole; and also
other supposed standard doctrines involving future prospects and class
relationships. Cf. R.L. Meek, Economics and Ideology, pp. 62, 67, 72–3.

38. Meek, Economics and Ideology, pp. 68–9, 70, 72. For much the same general approach see also Meek, "Marginalism and Marxism," History of Political Economy 4 (Fall 1972):500–1, and Meek, Studies in the Labour Theory of Value,
pp. 124–5 where "the persistent rejection or dilution of the labor
theory by so many economists during the late 1820s and the 1830s," is
attributed to the "use (or misuse) of classical value theory by the
British radical writers."

43. Ricardo, Works,
I, p. 343. (Sraffa ed.) See also pp. 305–6: "the money wages of labour
sometimes do not rise at all, and never rise in proportion to the rise
in the money price of corn, which though an important part, is only a
part of the consumption of the labourer."

46. Marshall, Principles,
p. 821n. See also Marshall, p. xxxiii regarding Ricardo's doctrine
which ("though obscurely expressed") "anticipated more of the modern
doctrine of the relations between cost, utility and value, than has
been recognized by Jevons and some other critics." See too Marshall, p.
101n. regarding Walras: "His success was aided even by his faults. For
under the honest belief that Ricardo and his followers had rendered
their account of the causes that determine value hopelessly wrong by
omitting to lay stress on the law of satiable wants, he led many to
think he was correcting great errors; whereas he was really only adding
very important explanations."

56. See, for this terminological usage, George J. Stigler, "The Successes and Failures of Professor Smith," Journal of Political Economy
84 (November 1976):1199–1213. It should be emphasized that we have been
concerned with "success" insofar as concerns "professionals" in
economics rather than simply "educated gentlemen." For evidence that
M.P.s frequently rejected the idea of a necessary opposition between
wages and profits see Barry Gordon, Political Economy in Parliament, 1819–1823. There is a further problem here that the inverse wage-profit relationship as interpreted by Ricardo does not represent a necessary opposition between labor and capital; allowance must be made for misinterpretation.

57. Malthus, Principles of Political Economy, 1st ed. (1820), 2nd ed. (1836); on Longfield, see his Lectures on Political Economy (1834) in The Economic Writings of Mountifort Longfield (New York, 1971).

58. S. Bailey, A Critical Dissertation on the Nature, Measure and Causes of Value (London, 1825).

64. G. Poulett Scrope, "The Political Economists," Quarterly Review 44, No. 87 (Jan. 1831); and Principles of Political Economy derived from the Natural Laws of Social Welfare (London, 1833). Samuel Read, Political Economy: An Inquiry into the Natural Grounds of a Right to Vendible Property or Wealth (Edinburgh, 1829); Nassau Senior, An Outline of the Science of Political Economy (London, 1836).

66.
Cf. the evidence presented by Professor P.H. Douglas which demonstrates
that the impetus to early nineteenth-century British socialism deriving
from the conception of profits and rent as "deductions from the whole
produce of labour" came from the writings of Adam Smith rather than
those of Ricardo. "Smith's Theory of Value and Distribution," in J.M.
Clark, Adam Smith, 1776–1926, p. 95f.

A similar account is given by Mark Blaug, Ricardian Economics,
p. 148; but see Blaug, p. 143. "Unlike Gray and Thompson, who show no
signs of having read Ricardo, Hodgskin derived his exploitation theory
of profit directly from Ricardo's version of the profit labour theory
of value."

In her well-known monograph on the subject Esther Lowenthal
questioned the legitimacy of the designation "Ricardian" socialism:
"although…the socialist use of the labour theory followed hard on the
publication of Ricardo's Principles, there is no evidence that
the socialists were particularly impressed by his teachings. They, all
of them, quote Adam Smith as their authority for the labor theory of
value…and only Hodgskin betrays an intimate knowledge of [Ricardo's]
work." (The Ricardian Socialists, p. 103). But Ms. Lowenthal
also asserts that Hodgskin attacks the claims of capital on the basis
of the labor theory of value and "bases very explicitly on Ricardo's
system of economics" his position that "since labour produces all
value, labour should obtain all value." (Lowenthal, pp. 73, 74–5).

See also Schumpeter, History of Economic Analysis, p. 479, regarding
the notion that labor is the only factor of production: "Though this
proposition harks back to Locke and Smith and not to Ricardo, it is
likely that the Ricardian theory of value did encourage these socialist
writers and also offered suggestions to them."

67. For a position close to my own see T.W. Hutchison, On Revolution and Progress in Economic Knowledge,
p. 240f. While Professor E.K. Hunt has recently demonstrated Hodgskin's
reaction against Ricardian value theory, he nonetheless accepts Meek's
general position regarding the motive for the bourgeois reaction on the
grounds that "most of Hodgskin's contemporaries…were quick to recognize
that Ricardo's labour theory of value led quite naturally to Hodgskin's
theory of capital. And this undoubtedly contributed to the conservative
reaction of the 1820's against Ricardo's value theory." See E.K. Hunt,
"Value Theory in the Writings of the Classical Economists, Thomas
Hodgskin, and Karl Marx," History of Political Ecoiomy 9 (Fall 1977):345.

68. Thomas De Quincey, The Logic of Political Economy (1844) in David Masson ed. Political Economy and Politics, pp. 250–1. J.S. Mill, in his review (Collected Works of J.S. Mill,
IV, pp. 403–4) complained of De Quincey's "ultra-Tory prejudices which
deformed his work, and which were particularly regretable since he was
so sound on economic theory." Mill had in mind largely De Quincey's
support for the corn laws.

69.
By contrast "the practical outcome of Hodgskin's inquiry seems tame,
and, as often happens with anarchist essays hardly in keeping with the
pretensions of the critical part of the work." Foxwell, in his
"Introduction" to Anton Menger, The Right to the Whole Produce of Labour, p. lxiv. On the nature of Hodgskin's own reform program—more precisely its absence—see also Halévy, Thomas Hodgskin, pp. 125–6.

70. Meek, Economics and Ideology, p. 71. See also Mark Blaug, Ricardian Economics, p. 149; L.S. Moss, "Isaac Butt and The Early Development of the Marginal Utility Theory of Imputation," History of Political Economy 5 (Fall 1973):325; and M. Dobb, Theories of Value and Distribution Since Adam Smith, p. 110.

71. The economists sometimes had to prove their moral and religious bona fides and reconcile economics with Christianity to gain entry into the universities. See L.S. Moss, Mountifort Longfield: Ireland's First Professor of Political Economy, pp. 14–5. Also see S.G. Checkland, "The Advent of Academic Economics in England," The Manchester School of Economic and Social Studies
(January 1951):52. But, it should be noted that the labor writers
expressed themselves in much the same language. Rejecting the
Malthusian principle, Hodgskin proclaimed that "moral feelings and
scientific truth must always be in harmony with each other," Popular Political Economy,
(London, 1827), pp. xxi-xxii. Hodgskin's book ends on the same theme:
"…the science of Political Economy" will be found when perfectly known
to "Justify the ways of God to man."

72. James Mill's Letter of 25 October, 1831 cited by Graham Wallas, The Life of Francis Place, p. 274n.